We have all heard the term demand but what exactly is it and what effects demand changes? Demand is defined by what consumers want and are able to buy over various time frames and prices. The main changes that effect demand are:
- Preferences
- Incomes
- Prices of Related Goods
- Future Expectations
An example of a demand change and the effects that caused it could be shown by an average dog owner and their monthly dog food purchases. Let's assume that most owners lean towards one specific brand of dog food for their purchases. Now imagine that another similar dog food brand starts an ad campaign promoting their dog food claiming it includes 10% more natural products. This could cause the demand to decline because consumer preferences may change and now lean more towards the substitute product. The graph below shows the demand change.
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